The consultants EY have been put on notice in case the company falls into administration.

Reports that creditors had rejected a potential rescue plan sent Carillion’s shares down by more than 28% on Friday.

Analysis: A moral hazard

By BBC business correspondent Joe Lynam

A decade ago the government bailed out the banks because – being central to the workings of the entire economy – they were “too big to fail”.

Now the same issue of moral hazard arises for the engineering giant Carillion.

If it collapses, what happens to politically sensitive work that it does, such as building hospitals and running schools, jails or Ministry of Defence facilities?

Pausing that work until new contracts are tendered, bid for and awarded would take years.

But bailing out a private company like Carillion, which paid out dividends to its shareholders last year, won’t play well with taxpayers.

So Carillion will either have to restructure its debts within days with its now impatient banks or file for administration and hope that EY can find a solution which is quick, clever and doesn’t cost jobs.

But in a statement, Carillion said: “Suggestions that Carillion’s business plan has been rejected by stakeholders are incorrect.”

It said the firm remained in constructive dialogue about short-term financing while “longer term discussions are continuing”.

Guarantees demanded

The government has said it was “monitoring the situation closely”.

A government spokeswoman said: “Carillion is a major supplier to the government with a number of long-term contracts. We are committed to maintaining a healthy supplier market and work closely with our key suppliers.”

The BBC understands that the Ministry of Justice has drawn up plans to bring £200m of prison contracts run by Carillion back into public control.

Carillion, which was founded in the late 1990s as a spin-off from building giant Tarmac, also operates in Canada, the Middle East and the Caribbean.

It has worked on key projects including the Royal Opera House in London, the Suez Canal road tunnel and Toronto’s Union Station.

It is also the second largest supplier of maintenance services to Network Rail.

The general secretary of the RMT rail union, Mick Cash, said Carillion’s workers “should have protection and guarantees from the government, including an assurance that operations will be directly transferred over to Network Rail” if it goes bust.

However, Liberal Democrat leader Sir Vince Cable has said ministers must not bail out the company.

The former business secretary told BBC Breakfast: “They’ve got to force the shareholders and indeed the creditors, the big banks, to take losses, and then the government can take responsibility for taking the contracts forward and making sure they are delivered.”